Biglaw: Welcome to the Credit Crunch
It’s a new year, and for Biglaw that usually means it is time for firms to go out and get a loan.
Obviously, this year it might be a little more difficult than usual. The American Lawyer is reporting that the credit crisis is coming to a partnership near you:
Law firms, typically considered good credit risks, are now experiencing the toughest and most expensive lending conditions in years. “Even good borrowers, prime borrowers, are having more restrictions and more difficulties than they used to,” says Altman Weil consultant James Cotterman.
Most firms will still be able to get loans to cover their immediate expenses. But to do so they will have to submit to more vigorous financial vetting than they did in the past. And, of course, it’s going to be a whole lot more expensive to borrow money:
Meanwhile, firms that didn’t secure a credit line early last year, and who went looking for it in recent months, discovered that credit wasn’t cheap anymore. “We just took out some lines from several different banks,” says the head of one firm, who asked for anonymity to speak frankly. The firm let its credit lines expire in 2003 and relied instead on capital contributions from partners. The banks used to give the firm credit for free. “Now we had to pay for the lines,” he says.Rates have doubled, from below 1 percent in 2007 to 2-3 percent today for the top 50 firms, says Andrew Johnman, head of professional services at Barclays plc. “If they need additional money or if they need an amendment to their credit facility, then we reprice it to current market pricing,” he says.
Apparently, banks are worried that additional firms will dissolve like Heller and Thelen. More on that after the jump.
Banks are tightening up in part because they don’t seem to think that every firm is going to make it through 2009:
The new year could bring devastating news. Dan DiPietro, client head of Citi’s law firm group, says he “would not be shocked to see another one or two dissolutions among The Am Law 200 next year.” Gibson, Dunn & Crutcher restructuring partner Jonathan Landers, Citi’s lawyer on law firm dissolutions, says he’s busy on a few workouts — basically loan restructurings — that haven’t yet become public.
Which Biglaw firms are already in need of big time loan restructuring?
“Banks get very nervous when there’s a crisis of confidence,” says Latham & Watkins partner Peter Gilhuly, who is advising Thelen on its dissolution. DiPietro, not naming Heller and Thelen, says Citi had firms that have dissolved recently on an internal watch list of potentially troubled firms as early as a year ago. “If we see a large number of people leaving and going to higher-quality firms, then we say we’d better take a look,” he says.
Which firms!?
What does the people’s bank of Citi know that we do not? Are we really going to see more dissolutions in 2009? Is anybody safe?
I guess we’ll have to wait and see …
A Shorter Leash [American Lawyer]
Earlier: City Lawyers Looking to be Citi Lawyers Because Citigroup is Going to Need Them
(45) 
Comments
first!
third!
In this economy, you need to learn about CPR:
Corn
Packed
Rattlesnake
That is all.
NAILING SHEEP increases your credit score 50 points. Its true, just ask any GULCer.
4 - don't forget the Velcro gloves!
This is the year that K&L Gates, and its no debt policy, move to the top. Hasta later.
Do many major law firms have debt? The ones I have worked at have had lines open but have never drawn on them.
MMMM. Government cheese!
Quick. Law firms to bank holding companies!
Have you ever seen what a .44 magnum will do to a Firm's credit rating? Now that, you should see.
7. Most law firms I've seen use debt, but primarily to make their large partner distributions in the Springtime. Some also use debt for their office buildouts, while others tap the partners.
This post though, is stupid. Pricing isn't going up because banks think that there are going to be a lot of other law firm dissolutions, it's because money is scarce compared to what it was even last year. I lend to partners and law firms and we recently got new pricing benchmarks for all of our loans and they are requiring us to signficantly increase pricing for all of our firms as they come up for renewal, particularly if it is for more than one year, and firms and partners are still the strongest performing borrowers in our portfolio with only one firm that we are worried about.
11 unless you are a banker at Citigroup no one cares what you have to say.
11, Nice run-on sentence... are you sure you lend to "partners and lawfirms" and not "Billy and Bobby, the kids from up the street?"
"I lend to partners and law firms and we recently got new pricing benchmarks for all of our loans and they are requiring us to signficantly increase pricing for all of our firms as they come up for renewal, particularly if it is for more than one year, and firms and partners are still the strongest performing borrowers in our portfolio with only one firm that we are worried about."
Many firms do not carry debt but they use their credit lines from time to time during the year.
stfu 13 you add nothing of value to this chat room
"it's because money is scarce compared to what it was even last year"
Yeah, because the Fed hasn't been throwing newly minted cash into the system by the bucket or anything. Definitly hasn't cut the Fed funds rate to 0% for these same goddamn banks.
Anyone else see their variable loan rates go UP, rather than down, this January (and yes, I paid everything on time)? Someone tell me why these guys, in response to getting funds at zero to a quarter of a percent interest, can jack up rates?
Oh man, what I wouldn't give for the internal watch list of firms from Citi!
Ellie, that is the kind of juicy stuff this place needs to break. If you can't get it by the end of the month we should just give the job back to Lat.
16, The banks are afraid you will lose your job and default on your loans.
Make sense now?
16: because they gave out too many shitty loans in the past which are, and will continue to, lead to huge losses.
In response, they jack up rates for everyone to keep from going bankrupt.
You could ask, however, why the banks aren't lending more to good credit risks. It could be there really aren't any good credit risks these days, but it seems like a bit of irrational contraction for the very best credit risks.
Unless the Fed magically makes all these bad loans disappear, cash infusions are only helping the banks tread water, not open up the loan spigots. And of course one could argue that they should not be opened up - overlending got us into this mess, why repeat it?
Money is still easy to get if you go to the right sources: see: http://www.evilesq.com/gunder-marcia-hatch-money-laundry/
Really the grammar nazi's on the website need to find some billable work to do. Those of us who have work post comments on the fly and yes some of us don't bother with fixing run on sentences. Is this a reflection on ability or intelligence as the hecklers like to point out? Maybe, but chances are the poster just doesn't care enough to fix the post and you are finding an amazingly lame way to make yourself feel better about either being stuck in law school, unemployed or close to it. Get off your soap box(es).
21 - Rigggghhhhhttt much better to spend time criticizing commenters for pointing out grammar errors than to criticize them for making grammar errors. The latter is obviously MUCH lamer than the former. Nice logic there chief.
18: shoot, I must have missed the clause in my promissory notes that says that they can ignore my current credit rating and the current prime rate and just dial up the interest rates because they feel I might lose my job.
Oh, wait . . .
MONEY'S EASY TO GET OUT OF YOUR FLESH.
FLESH IS EASY TO GET WHEN YOU WORK FOR YOUR MONEY.
(I will buy a cup of coffee for anyone who gets this reference.)
22: Your first and third sentences are fragments. Your third sentence is missing an important comma.
˙ʍɐן ǝɥʇ ʇnoqɐ ǝɹɐɔ ǝʍ ˙ɹɐɯɯɐɹƃ ʇnoqɐ ǝɹɐɔ ʇ,uop ǝʍ 'ɐıןɐɹʇsnɐ uı ˙ɟɟo ǝɯ ƃuıssıd sı ʞןɐʇ ɹɐɯɯɐɹƃ sıɥʇ ɟo ןןɐ
Swans
24 -- When you get pain, you deserve it.
11: What firm are you worried about?
26: Your sentence is upside down. Strunk & White indicate on page 48 of the 4th edition of The Elements of Style (hardback) that right-side-up is proper.
27 & 28 -- you guys rule.
By the way, can you guys help me get a job?
29. Sonnenschein. Everybody else look like should be able to make it through, although some may still struggle for a while.
Number 19. hit it on the head for why money is still scarce, nobody is lending it to each other, thus banks cost of funds for any length of time is still fairly high, and given the fact that noone is lending, while my bank still is, our orders are to price everything up even for good borrowers.
Here is an inside list at Citigroup of firms on a watchlist:
REED SMITH
REED SMITH
REED SMITH
REED SMITH
REED SMITH
REED SMITH
When will CWT's 2008 PPP numbers be out?
13,
Do you deal with bankers very often? Run-on sentences are common occurrences in all sorts of banker-produced documents.
17 is right. "I guess we'll have to wait and see ..." is the wrong attitude.
This should be obvious.
Is that Elie's new avitar?
I'm thinking the "shitty loan" theory is bs. I understand only relatively small percentage of loans went bad but that the derivative instruments amplified the losses and brought the whole system down. However, in the end, the banks precipitated the crash by over lending in order to bundle the loans into securities which they then unwittingly sold to themselves and now they are overcompensating to the detriment of everyone. LEND YOU ASSHOLE BANKS. And I mean that in the nicest way. Never have so many people swindled themselves out of so much of their own money.
11 & 32 - thanks for having big cohones and naming a name. Anyone else out there with big cohones?
Everything that I've heard from people in the firm is that Paul Hastings is on the way down. They are going to continue with the stealth layoffs and cut salaries like Latham. All the smart people I know are leaving that sinking ship.
As an ibanker (w/ JD) who worked on the last minute efforts to save and eventual dissolution of a biglaw firm, it's actually shocking how bad biglaw balance sheets are. Managing committee's have no business sense and couldn't read a P&L to save their lives . . .
In response to No. 7: Jones Day has no debt. It is surely far from unique in that.
Squire Sanders to.........
Dissolution?
Update:
http://abovethelaw.com/2009/01/clifford_chance_capital_contributions.php
19 - The banks aren't loaning to good risks because they don't know how bad the loans they have on their books will turn out to be when they have to write off the losses. We're throwing money at the banks so they can dump the loans they sold each other. It started with bad loans, but the real problem was that the banks leveraged themselves to insane levels (supporting short term profits which,, in turn, determined how big the bonuses were). The banks then bought and sold bad loans, sliced into small pieces and repackaged as good loans. This magic was based on low-default rates. The idea of low default rates was based on 1) Historical default rates, which unfortunately were measured when loans were made only to stronger borrowers, and so weren't a good guide. And on 2) The idea that housing prices could only go up. This was based on nothing - nada - just wishful thinking.
And that wishful thinking was the problem. (Also the synergistic greed for bonuses and cheap credit). Stop getting your economic info from a non-college graduate like Rush Limbaugh. He's an entertainer, that's all.